U.S. Treasury Secretary John Snow warned on Tuesday it was unhealthy for the global economy if countries depend on American consumers for growth, saying other nations needed to foster home-grown expansion.
As he prepared to head back to Washington after a 10-day swing through the Middle East and a weekend meeting of Group of Seven finance ministers in Dubai, Snow said too many countries were relying on export-led growth.
“While export growth can serve a useful purpose, you can’t have a successful world economy if everybody relies on the export sector,” he said. “Then, you build in imbalances.”
“So there’s increasing acceptance that particularly the major economies of the world need to focus on their demand-led growth, take steps to put in place reform policies that allow their domestic economies to perform well.”
Snow claimed there was growing acceptance among the G7 —the United States, Britain, Canada, France, Germany, Italy and Japan — about the need to get growth on a faster track.
Committed to action
He said a G7 statement issued on Saturday saying the ministers agreed on an “agenda for growth” that committed each country to take all steps necessary to boost economic activity was a solid achievement.
“I’m really pleased that the communique hit the nail on the head on that one and recognized that, clearly, the United States can’t be the only real engine of growth for the world,” Snow said. “That’s destabilizing for the world economy.”
The United States has been posting huge trade and current account deficits, partly because countries like Japan and China target America’s booming consumer markets for their products.
One of Snow’s goals has been to persuade China to let its yuan currency float more freely so its products are priced in response to market forces.
Japan also has been in U.S. sights over its repeated interventions in currency markets aimed at keeping its yen from appreciating too rapidly and sapping exports.
The G7 agreed there should be more “flexibility in exchange rates” — wording widely seen as a victory for Snow in his current campaign although Japanese and U.K. officials say the underlying currency policy of the G7 hasn’t changed.
Snow’s bid to get China to loosen its pegged currency is ardently backed by U.S. manufacturers who claim they can’t compete with Chinese-made consumer goods and Japanese import cars because of what they regard as a price advantages stemming from currency manipulation.
The U.S. Treasury chief said in response to questions that he was willing to look at China’s entry into the elite economic club that is the Group of Seven, a step that open more avenues to influence the Asian powerhouse’s policies.
“The issue of that membership gets reviewed from time to time and I think we’re open to looking at the whole question,” he said.
Must meet tests
“But there are criteria and tests and standards that you have for getting into these organizations and we don’t set them...so there has to be compliance with whatever the standards are,” he added.
Snow held a bilateral meeting on Tuesday with financial officials from Brazil, and said he the issue of whether Brazil will seek a new loan program from the International Monetary Fund when its current expires came under discussion.
“There was (discussion),” he said, “Nothing definitive but they said they were beginning to think about that, to explore it, but hadn’t made a decision whether to proceed with it or not.”
Snow said he raised the question of “whether it was advisable to take out more IMF debt, whether they really needed to do it,” adding he had not done it “critically.”
Snow said the Brazilians spoke about the possibility of having “precautionary money, sort of an insurance policy.”
Brazil’s current $30-billion loan package with the IMF expires this year and there has been debate within its government whether its economy is improving fast enough to enable it to do without renewing a full-fledged IMF program.